Accounting for Nonmonetary Exchanges Flashcards
If a nonmonetary exchange has commercial substance, how is the transaction accounted for?
Using the FV of the asset surrendered/received, whichever is more evident
When does an exchange have commercial substance?
If the future cash flows change as a result of the transaction
Change = areas of risk, timing, or amount of CF
Are gains and losses always recognized in exchanges having commercial substance?
Yes
How are gains and losses in exchanges with commercial substance computed?
The difference between FV and book value of the asset given up
In an exchange with commercial substance, what calculation is the cash given up used for?
To calculate the basis of the asset received
Under IFRS, how are exchanges of dissimilar assets and exchanges of similar assets accounted for?
Dissimilar assets: Accounted for in same manner as exchanges having commercial substance under US GAAP
Similar assets: No gains recognized
When does an exchange lack commercial substance?
If there is no expected change in cash flows or the FV cannot be determined
In exchanges lacking commercial substance, how are gains accounted for?
No boot is received = No gain
Boot is paid (<25% rule) = No gain
Boot is received (<25% of total consideration) = Recognize proportional gain
Boot received is 25% or more of total consideration = Gains/losses recognized in their entirety by both parties to the exchange
When a nonmonetary asset is involuntarily converted to cash, how are gains and losses accounted for?
Financial accounting purposes: The entire gain or loss is recognized
If a nonmonetary exchange has commercial substance, how is the transaction accounted for?
Using the fair value of the asset surrendered/received, whichever is more evident
When a nonmonetary transaction has commercial substance, what is the recognition of gains/losses based on?
The difference between the fair value and the book value of the asset given up
In all nonmonetary exchanges, when are losses recognized?
Immediately (when book value exceeds fair value of asset given up) because assets received should not be valued at more than their cash equivalent price
When a loss is recorded in a nonmonetary exchange, what is the asset received recorded at?
Book value of asset given up + Any cash paid - Any cash received - Loss recognized
In what kind of nonmonetary exchange should the exchange be measured based on the reported amount of the nonmonetary asset surrendered?
Nonmonetary transaction that lacks commercial substance
